*there is no missing or incomplete information*

Consider the following variant of the IS-LM-PC model with an upward-sloping LM-curve:

Y_t = C(Y_t T_t) + I(Y_t, it) + G_t (IS)

M_t / P_t = Y_tl(i_t) (LM)

_{t t1} = (/L )(Y_t Y_n) (PC)

Where L denotes the labor force, l(i) is the liquidity preference function, i is the nominal interest rate, M/P is the real money supply, Y is the level of output, and Y_n is potential output.

a. Draw the IS-LM-PC model in an initial equilibrium with _{t t1} = 0 and Y = Y_n.

b. Suppose there is a sudden negative shock to consumer confidence. What is the impact of the decline in consumer confidence on output, inflation, and the interest rate in the short-run? Graph it.

c. What is the impact of the decline in consumer confidence on output, inflation, and the interest rate in the medium-run? Graph it. What is the mechanism that connects the short-run to the medium-run (hint: with an upward-sloping LM curve, we are modeling the central bank as controlling the money supply, rather than the interest rate).